Foundations and Philanthropy

Taxpayers who elect to itemize can claim a deduction against federal income tax liability for contributions made to registered charitable organizations. While cash gifts still account for the vast majority of charitable donations reported on tax returns, gifts of noncash property have grown as a share of total contributions. Gifts of corporate stock, mutual funds, and other investments account for the largest share of noncash donations and are almost exclusively reported by high-income taxpayers.

This brief attempts to access the trends in charitable giving and how the current economic turmoil has affected the nonprofit sector - the main topic of an August 2011 roundtable hosted by the Tax Policy and Charities project at the Urban Institute. Twenty-five experts on tax policy and the nonprofit sector convened to discuss past trends in giving, the charitable sector's current situation, and the possible effects of proposals to modify the charitable deduction.

Eugene Steuerle testifies before the Senate Finance Committee on "Tax Reform Options: Incentives for Charitable Giving," presenting options on how to increase tax revenues with minimal impact or perhaps even an increase in charitable giving. Among other recommendations, he suggests a floor under charitable giving, improved compliance measures, greater restrictions on non-cash gifts, a better system of information reporting, allowing taxpayers to immediately deduct contributions they make while filing their tax returns, extending the deduction to taxpayers who don't itemize, raising the ceiling on allowed charitable giving for some types of gifts, and reforming the foundation excise tax.

As budgetary pressure forces policymakers to look for ways to reduce the deficit, new proposals have emerged to reform both directly and indirectly the income tax deduction for charitable contributions. With charities already struggling from increased need and decreased giving due to the recession, it is vital to understand the effects that tax reform proposals could have on the charitable sector. This session explores the impact of the income tax deduction on charitable giving and present new estimates of the effects of specific tax reform proposals on the charitable sector.

The recession and its aftermath continue to ravage many nonprofits with a trifecta of troubles: reduced giving from individuals, government funding cuts, and increased demand for services. Mix in bruised foundation and corporate philanthropy, unemployment rates stuck over 9 percent, rising poverty levels, the desperate status of most state budgets, and the politics of the federal deficit and you have an environment choking the nonprofit sector.

Footballer Michael Vick, baseballer Alex Rodriguez, and golfer Tiger Woods have been highlighted in broadcasts lately, having come back to their games after losing "hero" status by harming their families, friends, teams, fans, and sports. Perhaps the greatest cost of their prior actions was movingly stated by Frank Deford, when he asked if young fans today had anyone to look up to.

This 1987 study still provides some of the most comprehensive data on charitable giving by the wealthy. Giving by top wealthholders at death tends to be much larger than annual giving during life, wealth has only a limited effect on lifetime giving, and giving is more correlated with realized than with economic income. The last conclusion implies that tax incentives to avoid realizing income tend to reduce giving. Also, that top wealthholders often forego available tax saving demonstrates both a lack of planning and the extent to which they gain psychic benefits from wealthholding itself.

This brief highlights trends in the number and finances of 501(c)(3) public charities, as well as key findings on private charitable contributions and volunteering, two vital resources to the nonprofit sector. Figures on giving and volunteering include the most recent data available. Data reported on the nonprofit sector are from 2007—a snapshot of the sector just before the U.S. economic recession.